The Gunma Bank (8334) FY2026 Q3 Earnings Report

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Executive Summary

This earnings result reflects higher revenue and profit, primarily driven by the expansion of funds investment income and cost controls, with steady progress toward the full-year plan. Ordinary revenue was 1,993.0B (+19.8% YoY), Ordinary Income was 651.1B (+44.5%), and Net Income was 447.9B (+40.5%). While growth in service-related income supplemented increases in interest on loans and interest and dividends on securities, the increase in operating expenses was limited to +8.4%, resulting in an Ordinary Income margin of 32.7%, an improvement from 27.1% in the same period of the previous year.

Factors Affecting Performance

【Revenue】Ordinary revenue was 1,993.0B, up +19.8% YoY. By segment, the Banking Business led overall performance with 1,683.5B (84.5% of total, YoY+20.5%), followed by the Leasing Business at 259.7B (13.0%, YoY+14.8%) and Other Businesses at 49.8B (2.5%, YoY+22.9%). In the Banking Business, interest on loans increased to 746.5B (YoY+26.5%), while interest and dividends on securities increased to 421.7B (YoY+18.1%). Interest income expanded at a pace exceeding the +4.4% increase in outstanding loans, likely reflecting improvements in lending and investment yields.

【Profit and Loss】Ordinary Income was 651.1B (YoY+44.5%). Segment profit was led by the Banking Business at 608.5B (profit margin 36.1%, YoY+45.7%), while Other Businesses generated 30.6B (profit margin 61.5%, YoY+35.8%) and the Leasing Business generated 12.6B (profit margin 4.8%, YoY+15.2%). The Banking Business’ profit growth exceeded the overall rate and remains the core of the earnings structure. Extraordinary losses were limited to 7.6B, including impairment losses of 1.0B, and their impact on Profit Before Tax was limited. Net Income was 447.9B (YoY+40.5%), slightly below the growth rate of Ordinary Income, due to a tax burden equivalent to an effective tax rate of 30.4%, with no particular divergence factor. Revenue and profit both increased, while the +8.4% growth in operating expenses remained below the +19.8% growth in revenue, contributing to margin improvement.

Segment Analysis

The Banking Business is the core business, accounting for 84.5% of Ordinary Revenue and 93.4% of Ordinary Income. Increases in interest on loans and interest and dividends on securities were the primary drivers of profit growth. The Leasing Business generated Ordinary Revenue of 259.7B (YoY+14.8%), but its profit margin of 4.8% was substantially below the Banking Business’ 36.1%, indicating a complementary role in the earnings structure. Other Businesses are small in scale, with Ordinary Revenue of 49.8B, but have a high profit margin of 61.5%; fee-related businesses such as securities, guarantees, and consulting are likely contributing to profitability.

Key Financial Indicators

【Profitability】The Ordinary Income margin was 32.7%, improving by approximately 560bp from 27.1% in the same period of the previous year, while the Net Income margin was 22.5%, improving by approximately 330bp from 19.2%. Annualized ROE was 9.9%, with the improvement in the Net Income margin and the high financial leverage characteristic of the banking industry supporting earnings power.【Cash Flow Quality】Comprehensive Income was 694.1B, exceeding Net Income of 447.9B by 246.2B. This was primarily due to an improvement in the valuation difference on other securities to 270.5B (△210.9B in the same period of the previous year), and a portion represents unrealized gains subject to market fluctuations.【Investment Efficiency】Outstanding loans were 7兆648.3B (+4.4% compared with the same period of the previous year), while securities holdings were 2兆22.1B (△8.6%), indicating a shift toward a loan-centered asset composition. Estimated NIM was 1.10%, below the generally accepted sound benchmark of 2%.【Financial Soundness】The Equity Ratio was 5.6%, improving by 0.3pt from 5.3% in the same period of the previous year. Net assets increased to 6,055.4B (+7.6% compared with the same period of the previous year). The debt-to-equity ratio was approximately 16.8x, a high level by the standards of general operating companies, but an inherent characteristic of the banking business model, which relies primarily on deposits as a source of funding.

Cash Flow Analysis

As cash flow statement data have not been disclosed, the flow of funds is analyzed based on balance sheet trends. Cash and due from banks increased to 1兆3,624.3B, up +6.8% compared with the same period of the previous year, indicating an expansion of the liquidity buffer. While loans increased to 7兆648.3B (+4.4%), securities decreased to 2兆22.1B (△8.6%), suggesting a shift in investment assets from securities to loans. On the funding side, deposits increased moderately to 8兆6,014.3B (+1.8%), while borrowings declined to 9,356.2B (△10.2%) and bonds increased to 600.0B (+50.0%). The funding structure is shifting toward deposits and bonds, and dependence on short-term market-based funding appears limited.

Earnings Quality

Profit growth in the current period resulted from the expansion of recurring funds investment and fee income, including interest on loans, interest and dividends on securities, and service transaction income. There were no extraordinary gains, while extraordinary losses were small at 7.6B, including impairment losses of 1.0B, indicating a limited contribution from temporary factors. The +8.4% growth in operating expenses remained below the +19.8% growth in Ordinary Revenue, contributing to margin improvement; earnings quality can therefore also be considered favorable from a cost structure perspective. On the other hand, Comprehensive Income of 694.1B exceeded Net Income of 447.9B by 246.2B. This difference resulted from unrealized valuation gains associated with the improvement in the valuation difference on other securities, from △210.9B in the same period of the previous year to +270.5B in the current period. Accordingly, attention is warranted because a reversal in interest rate or market conditions could affect net assets. In addition, interest on deposits surged +115.3% compared with the same period of the previous year. The possibility that rising funding costs could constrain future growth in net interest income is an important point to monitor when assessing earnings sustainability.

Earnings Forecast and Guidance

The cumulative Q3 progress rate was 83.5% against the full-year Ordinary Income forecast of 780.0B, while cumulative Net Income of 447.9B represented a progress rate of 81.4% against the full-year Net Income forecast of 550.0B attributable to owners of the parent. Both exceeded the standard progress rate of 75%. Neither the earnings forecast nor the dividend forecast has been revised during the period, and both remain unchanged. Forecast EPS is 144.70 yen, while cumulative Q3 EPS of 117.69 yen corresponds to a progress rate of 81.3%. Interest rate conditions and trends in funding costs will be factors affecting the degree to which the plan is achieved in Q4.

Shareholder Returns

The Q2 dividend was 30.00 yen per share, and the full-year forecast dividend is 60.00 yen. The Payout Ratio against cumulative Q3 Net Income of 447.9B, calculated as a reference value based on cumulative dividends, is 26.5%. However, the full-year forecast Payout Ratio calculated from forecast EPS of 144.70 yen and the forecast dividend of 60.00 yen is approximately 41.5%, maintaining dividend capacity at a level below 60%. As no disclosure has been made regarding share repurchases, returns are evaluated based on the Payout Ratio rather than the Total Return Ratio. Retained earnings increased to 4,888.3B, up +166.5B compared with the same period of the previous year, indicating continued accumulation of internal reserves.

Risk Factors

1. Low NIM level: Estimated NIM is 1.10%, below the generally accepted sound benchmark of 2% for the banking industry. Interest on deposits surged +115.3% compared with the same period of the previous year. If the increase in deposit rates exceeds improvements in lending and investment yields, net interest income and the Ordinary Income margin could come under pressure.

2. Securities valuation fluctuation risk: The valuation difference on other securities improved substantially to 270.5B (△210.9B in the same period of the previous year), boosting Comprehensive Income, but could become a source of net asset fluctuations if interest rates rise or market prices reverse. Securities holdings were 2兆22.1B (△8.6% compared with the same period of the previous year), indicating that portfolio adjustments are also progressing.

3. Highly leveraged structure: The debt-to-equity ratio is approximately 16.8x, reflecting the structural characteristics of the banking industry, which relies on deposit funding. However, the effects on profit and net assets can be amplified if asset valuation losses or credit costs arise. In addition to borrowings of 9,356.2B and bonds of 600.0B, short-term market-based liabilities are also present, creating sensitivity to changes in funding conditions.

Industry Benchmark (Reference; Compiled by the Company)

Profitability and Returns

Relative comparison data within the industry are limited; however, an improvement of +330bp compared with the same period of the previous year has been confirmed in absolute terms.

Growth and Capital Efficiency

Although industry median data have not been developed, the Company’s Ordinary Revenue growth rate of +19.8% indicates substantial growth from the previous year.

※Source: Compiled by the Company

Key Takeaways from the Earnings

1. Ordinary Income increased +44.5% YoY, while Net Income increased +40.5%, representing strong growth. The Ordinary Income margin improved by approximately 560bp. The Banking Business accounted for 93.4% of Ordinary Income, and improvements in lending and securities investment income were the primary drivers of company-wide profit growth.

2. Progress rates against the full-year plan were 83.5% for Ordinary Income and 81.4% for Net Income, exceeding the standard progress rate, while both the Company’s earnings forecast and dividend forecast remain unchanged.

3. Comprehensive Income exceeded Net Income by 246.2B, primarily due to the improvement in the valuation difference on other securities. Because this difference includes an unrealized component subject to market conditions, the estimated NIM level of 1.10% and the pace of rising deposit costs are structural monitoring points when assessing earnings sustainability.

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting with professionals as necessary.

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